Trading with a checklist can help you avoid unnecessary mistakes.
Trading stocks requires discipline and thorough analysis. A checklist can help you do just that. By analyzing whether you should buy or sell a given financial instrument with a checklist, you are making sure you are not carried away by the market sentiment, but basing your decisions on a strong and rigorous analysis.
Trading Volume
Check the trading volume of the stock and compare it to stocks from the same industry. The trading volume is typically measured in average daily volumes. If the stock has an average daily volume below 100,000, you may find it difficult to sell in the future (i.e., the stock is illiquid).
Price/Earnings Ratio
Price-to-earning (P/E) ratio is calculated by dividing a stock's market price by the profits-per-share ratio. The P/E ratio shows how many year's of profits are necessary to cover the current market price of the stock. Abstain from buying stocks with a P/E ratio above 20, as they may be overvalued in current market conditions.
Historical Performance
Look at the historical performance of the stock. Buy the stock if it has been rising and sell it if it is falling. It is much easier to trade with the trend than against it. If you cannot distinguish any clear trend in the stock's movement, then do not trade it, as it may move randomly.
